The True Cost of Gasoline

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Financial markets notwithstanding, most of us were happy to see gas prices fall. It has certainly helped to put a little extra breathing room in our household budgets, even though we suspect it could lead to increased use of fossil fuels. On the other hand, it could open the door for some new initiatives to help control emissions, such as a carbon tax, or a fee and rebate plan that would tax the production of fossil fuels and give the proceeds out to all Americans.

Perhaps this would be a good time to take a closer look at what that gallon of gasoline actually costs us, when all the impacts are considered.

Financial markets notwithstanding, most of us were happy to see gas prices fall. It has certainly helped to put a little extra breathing room in our household budgets, even though we suspect it could lead to increased use of fossil fuels. On the other hand, it could open the door for some new initiatives to help control emissions, such as a carbon tax, or a fee and rebate plan that would tax the production of fossil fuels and give the proceeds out to all Americans.

Perhaps this would be a good time to take a closer look at what that gallon of gasoline actually costs us, when all the impacts are considered. That’s what Drew Shindell, a professor at Duke University, attempted recently in a study that was published in the journal Climatic Change. In an article entitled “Social Cost of Atmospheric Release,” Shindell developed and tabulated a means to assess the “climate damages” associated with various greenhouse gases including CO2, aerosols, methane and nitrous oxides. All told, 10 different pollutants are considered. With these costs added in, Shindell said we are actually paying $6.25 for a gallon of regular or $7.72 for a gallon of diesel. That’s quite a bit more than the latest AAA reported national average price of $2.429.

So, the question is: How is this figured, and who exactly is paying for it? Shindell takes the approach of calculating a yearly emissions price tag, which he estimates is between $330 billion and $970 billion (depending on how you compute the discount rate), and then allocates between the various emission sources.

His focus is primarily on health-related costs. For example, he points out that, “air pollution in the United States sends about 150,000 people to the hospital every year and causes 180,000 non-fatal heart attacks.” While that might not directly impact each of us if we don’t get sick, it certainly does affect the rising cost of health care, which does affect us all. Beyond the health impacts, there are, of course, environmental impacts to be considered as well.